Discrediting the Easy Crediting of Easy Credit

Fed Chairman Ben Bernanke asserts – as if it’s an incontrovertible fact – that “The Fed played a major part in arresting the [current] crisis” (“The right reform for the Fed,” Nov. 29).

First, it isn’t clear that our economic troubles have been arrested. More likely, they’ve been delayed and aggravated by the additional moral-hazard unleashed by the bailouts and, even worse, by the Fed’s gargantuan recent increases in the money supply.

Second, if it’s true that there’s now light at the end of this tumultuous tunnel, no real evidence exists to support Bernanke’s claim that the reason for our good fortune is Fed policy. Writing in the Christian Science Monitor in September, economist George Selgin observes that recessions “do eventually end, with or without central bankers’ help. According to the National Bureau of Economic Research, the US went through 32 recessions between 1854 and 2001, the average duration of which was about 17 months – or a few months shorter than the current recession, so far.”

For the first 60 of these years America had no Fed or any other central bank. During the other 87 of these years, the Fed often either did nothing to arrest recessions or reacted positively to recessions in ways that economists now agree made matters worse.